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Home Ownership in Iowa Gets One Step Closer
By Tracy Dickinson
HOME TRENDS April/May 2018
home :: home & garden :: home trends

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Home Ownership in Iowa Gets One Step Closer

First-time home buyer legislation takes effect.

Des Moines has appeared on numerous Top Cities for Young Professionals lists. At the same time, the state of Iowa has long struggled to retain its young people. The appeal of more urban opportunities, the variety of options for living situations, and a misguided perception that Iowa isn’t the place to be are all factors contributing to that.

But things are changing. And a recent decision by the Iowa Legislature seeks to encourage that change.

For more than four years, the Iowa Association of REALTORS® (IAR) has been working with state legislators to draft a bill that would make home ownership just a little easier for first-time buyers. Finally, after multiple versions had been written, revised, and reintroduced, the Senate and House passed the bill and presented it to then-governor Terry Branstad last May. Branstad signed what has come to be known as the First-Time Home Buyer Law, which took effect January 1, 2018.

According to Ken Clark of VIA Realtors, former president of the IAR, “That was a long time coming. We’d worked on multiple versions of the law before finally getting one that everyone was happy with.”

The bill passed overwhelmingly—49-1 in the Senate and 87-11 in the House—and is one of only a handful of similar bills around the country.

“It’s modeled after the 529 college savings legislation,” says Clark. “We hope it will encourage young Iowans to stay in the state, like the 529 program does with college.”

The plan was initially available through only a handful of financial institutions. More and more local lenders have begun promoting the savings accounts to new and existing customers.

One of the first financial institutions to get involved was Iowa Savings Bank. Realtor Scott Wendl, who was also actively involved in promoting the legislation, was the first Iowa resident to open a qualifying account. “I have three kids, ages 19, 16, and 14,” he says. “So I opened three accounts, with each as the beneficiary for one of the accounts.”

Wendl says one of the biggest barriers for first-time home buyers is the down payment, and this savings program is designed to address that. “The higher cost of living, student loan debt, not having any real savings: These all slow buyers down,” he says. “And even if a young buyer can qualify for financing, having a bigger down payment can make it possible to get better points on their loan or avoid the monthly private mortgage insurance (PMI) fee, which means a lower payment every month.”

“This legislation does more for the health of the state and future home buyers than it does for us as Realtors. That was our motivation behind this project,” Clark says.

Statistically, individuals who own their home rather than rent are more likely to have children who stay in school, more likely to have children who go to college, and more likely to maintain and improve their residence and neighborhood.

“Home ownership is best for the individual and for the economy of Iowa,” Clark says. “And Iowa has suffered from a brain drain for years, with young people moving out of state for work after college. If these savings accounts make buying a home in Iowa possible, all other factors being equal, young people are more likely to stay, and we want to encourage that.”

The response within Iowa has been extremely positive, Wendl says. “We’ve had a lot of local support since the bill was signed last spring. And we’ve had Realtors from other states reach out to learn more about it so they can get something similar started in their own states.”

Anyone can open a new qualifying savings account with a participating lender, naming a specific beneficiary for the account, and there are no limits to annual contributions. However, the Iowa income tax deduction on contributions is limited to $4,000 for a married couple filing jointly or $2,000 for an individual. In addition, the same beneficiary can be named for multiple accounts, so parents, grandparents, and others can all open a savings account for the same child.

“You can open an account tomorrow and deposit $20,000,” Clark says. “But you can only deduct $4,000 of that on your taxes next year if you file jointly. And you can only claim first-time home buyer savings deductions for 10 years. So if you contribute for more than 10 years, you can’t continue to claim the contributions on your taxes.”

Funds accumulated in a qualifying savings account can be used tax-free by the beneficiary to purchase a home in Iowa. If a beneficiary is unable to purchase a home in Iowa or chooses not to do so, the funds can be withdrawn, but penalties will apply.

“I would not advise opening an account too early,” Clark says. “Unlike the 529 college savings accounts, it’s probably not advisable to open a first-time home buyers account when a child is born since the tax deduction is only available 10 times. But by the time a child reaches the teens, it’s a good idea to start thinking about it.”

There may be situations where it’s too early to begin depositing, but it’s never too late. Talk to your Realtor or banker for advice on opening a first-time home buyers savings account or look for more details at IowaFirstHome.com and IowaRealtors.com.

By the time your kids or grandkids are ready to purchase a home, Iowa may well be the best place to start a career on anybody’s list.

 

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